The government's proposed U-turn on the rule requiring new property developments to source at least 10% of their energy from renewable sources may be in breach of the law, according to green energy groups.

The Sustainable Energy Partnership wrote to housing minister Yvette Cooper yesterday reminding her of the government's duty under the Energy Act of 2004 to establish a microgeneration industry - by which users of energy generate power on a small scale - through use of the Merton Rule, established by the London borough of Merton in 2003 and copied across the country.

Ms Cooper said last year all councils would soon have to adopt the Merton Rule, but has since been lobbied by property industry groups which argue that the government should work out a national strategy over the next decade rather than allow local councils to set rules.

Critics led by the Sustainable Energy Partnership, a group consisting of almost all of the country's renewable energy trade bodies and the Association for the Conservation of Energy, say house builders simply do not want the extra cost involved, even though it typically adds only 3-4% to costs.

The latest draft planning policy statement from Ms Cooper's department waters down the requirement for all councils to adopt the rule.

"You will no doubt be aware of the great concern expressed by many organisations regarding the abandonment of the Merton Rule, in the draft PPS now being considered," wrote SEP organiser Ron Bailey.

"Our purpose here is not to simply repeat the concerns as we are sure that you are aware of them: rather we wish to call into question the legality at what is proposed in the draft PPS."

The letter says that the microgeneration strategy developed out of the 2004 Energy Act "very clearly calls for a tightening of the Merton Rule - which policy the government thus has a duty to implement".

Pressure on Ms Cooper from the renewables industry and green groups is mounting. Last week groups including Friends of the Earth and Greenpeace, as well as shadow environment minister Peter Ainsworth and his Lib Dem counterpart, Chris Huhne, urged her not to weaken the Merton Rule. But yesterday was the first time the prospect of a legal challenge was raised.

Alex Murley of the British Wind Energy Association said: "The Merton Rule is delivering energy efficiency gains and on-site renewable energy now. Scrapping the rule would be a devastating blow to both, and undermine efforts to deliver the government's own 2016 Zero Carbon Vision."

Yesterday a group of environmentalists, academics and MPs, including many of those who support the Merton Rule, released a statement urging the government to introduce a "feed-in tariff" - a payment for microgeneration - to support renewable energy, as has been successfully used in a number of other countries and is being rolled out across Europe.

In a joint submission to government consultation on its existing renewable obligation scheme, which critics say has had little success, the report, compiled by Professor Dave Toke of Birmingham University, says the UK's current levels of renewable deployment have been achieved at a cost to the consumer 40% higher than what could have been achieved with a feed-in tariff similar to that operating in Germany.

"We believe that, as the German experience shows, an FIT is a superior policy mechanism for supporting the development of renewable energy ... and that the UK government must immediately start to produce plans for a FIT to support on-site, smaller scale, domestic and community renewable energy."

The government denied it was about to make a U-turn. A spokesperson for Ms Cooper's department said: "This is a lot of nonsense - there is no U-turn on Merton. Our ambitious on zero-carbon target for new homes will require much greater use of renewable energy, not less, and the new planning rules will make this happen.

"Councils will continue to be able to use their Merton rules but we want them to go even further where sites allow for greater levels of renewable energy."